1. Field of the Invention
The present invention is generally directed to methods of carrying out financial transactions over a computer network and more particularly transactions involving credit card, debit card or electronic funds transfer from bank accounts.
2. Discussion of the Prior Art
Increasingly, buyers and sellers involved in commerce are turning to the internet to conduct their business electronically in a relatively fast and quick manner. The internet is particularly attractive to buyers because it provides a vast knowledge base from which they can research and find information about perspective purchases of various goods. Time can be saved because the consumer does not have to travel to various places such as a library or store to obtain information regarding the various goods to be purchased. Indeed, the entire process of shopping for goods and services can be completed using a personal computer at one's home so long as the computer is connected to a network such as the internet. As time has passed, new opportunities for shopping via personal computer have increased as more and more people gain access to the internet and more and more businesses provide services on the internet.
Likewise, using the internet for commerce is extremely attractive to businesses as they can provide the same type of information that was traditionally provided through catalogs and other advertising. Furthermore, transactions can occur between customers and sellers in a similar manner as was usually done at a checkout stand in a store. Indeed in the case of informational products, such as computer software, videos, or music, the goods themselves can be delivered through the internet and payment can be received through the internet so that the entire transaction occurs through a computer network without the customer or merchant ever actually meeting in a store. This method of doing business provides tremendous cost savings to manufacturers and sellers. Even items that have to be physically shipped can benefit from this form of commerce. Once a customer has browsed through a merchant's website and selected various goods that they wish to purchase, the merchant simply needs to verify the payment and then ship the goods to the customer. The verification of payment step has led to most of the problems and, indeed, is restricting commerce on the internet.
One of the reasons that the vast number of merchants already using such networks have had trouble increasing sales volume on these networks is the inherent difficulties involved with customers paying for their purchases. The problem facing merchants is how do they determine that payment data actually belongs to the customer attempting to use it. One solution to this problem of course is that a potential purchaser can provide a merchant with a credit card number which is transmitted over the network. Of course this presents numerous security problems for both the seller and the buyer. For example, the credit card number could be obtained by an unauthorized third party during the transmission of the information from the customer to the seller. Even if a secured network is used wherein such third parties are precluded from gaining access to credit card data transmitted over the network, it does not address the problem of a customer using a stolen credit card in the first place. As such a dishonest person could use a credit card number that was stolen, send it on the secured network, yet the merchant would still be out of luck, because only after the goods were shipped to the customer would the merchant realize that the wrong person's credit card had been used.
In the case where a credit card number is stolen, thousands of dollars can be lost as the third party who obtained this data uses the credit card for numerous fraudulent transactions until the credit card is canceled. Also, the issuer of the credit card is still out of money when the credit card number itself has been stolen prior to the transaction taking place.
A few companies on the internet have proposed solutions to this problem. For example, Pay/Pal®, a company currently owned by eBay® which processes transactions in financial payments conducted on the internet, has proposed a method where they deposit into U.S. bank accounts very small amounts of money such as five to twenty-eight cents before the main transaction occurs. After that, the customer must check their own bank accounts, obtain these numbers and then provide the numbers to Pay/Pal® in order to verify that the bank account given is indeed their account. Unfortunately, this method has some distinct disadvantages. First of all, money is being sent to an account that may never actually be used. Second of all, this method requires several transactions, for example, Pay/Pal® initially has to send money to the account in order to verify that the account is valid and presumably this must be done for every account to be checked. Furthermore, it may have to be repeated over time to ensure the accounts have not been canceled. It is only after an account has been verified that Pay/Pal® can conduct an actual transaction. It must be remembered that the whole goal of the internet is to provide an efficient, time saving and low cost method of doing business. Every additional action a customer must take in order to provide security can result in lost business for a merchant.
Another proposed solution is set forth by Templeton et al. in U.S. Patent Application Publication No. 2001/0004772 directed to a system and method for verifying a financial instrument, which is incorporated herein by reference. Templeton et al. proposes a system initiating one or more verifying transactions involving an instrument, with details that may vary from one transaction to another such as the type of transaction (e.g., deposit, credit, debit), amount of the transaction, number of transactions, the merchant or vendor name or account for the transaction, and so on. Selected details, particularly variable ones are saved to the system. The user obtains information regarding a transaction by accessing the account on-line, via telephone, in a monthly statement, etc. The user then submits the requested details to the system, which compares them to stored details. If the details correspond, then the user may be allowed to use the instrument to purchase a product. While this solution is effective as far it goes, it does not address the particular problems addressed by this invention. Specifically, the method disclosed by Templeton et al. requires that a transaction occur wherein money is transferred from a vendor to a financial institution. While such an amount may be small per transaction, when millions of transactions are involved, such costs can rise quickly. Additionally, the Templeton et al. publication does not address the problems of foreign currency transactions. Since there are fluctuations in foreign currency values, it would be difficult to confirm amounts charged to a financial institution without knowing the exact date of the transaction and the exchange rate on that date.
Therefore, there exists a need in the art for an inexpensive way to verify that a consumer's account is not fraudulent in a rapid manner which may also be used in international transactions.